Explain in detail the value source and design method of functional tokens

A trend of X to earn is gradually being sought after by everyone. Unfortunately, the token designs of many systems are not very successful. There are many reasons for this, but one of the most important reasons is brainless coins: simply giving users tokens because they use the platform. Such designs often lead to imbalances in the economic system and use the wrong incentives to cause users to misbehave. A good token system should have the following two characteristics:

  1. Tokens are meant to incentivize the achievement of goals, not the goals themselves . Your goal can be to incentivize good content, it can be user growth, but it can’t be simple token appreciation.
  2. Token circulation is clear and sustainable . What actions will generate tokens? What actions consume tokens? How is the cycle of token generation and consumption realized? Is this system sustainable?

Governance Tokens vs Utility Tokens

Many token systems today are dual-token structures that separate governance tokens from utility tokens. The two tokens are very different, and when we design a token, we need to be clear whether we are designing a governance token or a utility token.

Governance tokens represent equity. Each token represents a portion of the ownership of the organization and is used to vote and receive dividends. The distribution and holding of tokens has nothing to do with the specific business, but with the power structure of the organization. The value of governance tokens is volatile and fluctuates with market capitalization. The total amount of governance tokens is generally fixed, but it can also be issued additionally, which will dilute the value of the tokens. The MKR token in MakerDAO and the COMP token in Compound are typical governance tokens.

A utility token is a service token whose purpose is to facilitate the value cycle of an organization’s business. The value of functional tokens is generally anchored to specific service prices. In reality, service prices are generally relatively stable, so the value of tokens is usually relatively stable. The total amount of utility tokens is usually not fixed, and is continuously generated and destroyed as the service starts and ends. The circulation of tokens is generally determined by the current business scale. MakerDAO’s DAI is a functional token, and its price is relatively stable, anchored at 1 USD. With the cycle of lending and repayment, DAI is continuously generated and destroyed, and its circulation is related to the scale of the lending business.

This post introduces a design approach to value-flow-based utility tokens without touching on governance tokens. We will take the existing Web2 advertising-based social network as an example, analyze its value stream, and then proceed to functional token design.

Step 1: Figure out where the value comes from

Everyone is familiar with the current advertising-based business model of social networks. In this model, merchants pay for social networks, and users use the platform for free, and the revenue minus the cost is the profit of the social platform itself.

Explain in detail the value source and design method of functional tokensValue Stream Map v1.0

According to the graph above, it is easy to see merchants as a source of value for social networks. There is a saying that if you are not paying for a product, you are the product itself. But is it really so? Are users really not paying for social networks? If we look beyond the social network-centric perspective and put it in the picture of a larger commodity economy, we can see that the value stream in the above figure is only a part of a larger value stream.

Explain in detail the value source and design method of functional tokensValue Stream Map v2.0

A more complete story is: merchants advertise on social networks, users buy goods from merchants through social networks, and merchants allocate a portion of the profits as marketing expenses to pay social media as advertising fees. In fact, the revenue of the social network is still paid by the users, but the merchants have lost their hands, and the paying users look like “free users”!

I call this feature of current social networks parasitic , that is, social networks are parasitic on the general market economy. Parasitic-dominated social networks must act to accelerate the flow of goods in the marketplace, not just focus on the needs of users. Users are the real source of value, but the full flow of value is obscured by the parasitic nature of social networks.

Step 2: Segmentation of user behavior

After the basic value stream is clear, we need to do behavioral segmentation. The question to be clear here is, what kind of behavior creates value? What kind of behavior consumes value?

For the social networks mentioned in the previous section, we can subdivide user behavior into three categories:

  1. Product purchase behavior , such as browsing or clicking on advertisements, which directly create value for social networks
  2. Content consumption behavior , such as browsing content, does not create value for the platform and consumes the value of the social network
  3. Content creation behavior , the situation is more complicated. If the created content promotes the purchase of goods (through new pull or conversion), it also indirectly creates value for the platform, but this value creation may have a “time difference”. A video may have gone unnoticed when it first came out, but then caught fire after a while. Here we need to pay attention to the difference between the advertising model and the content payment model. Under the content payment model, the content consumer pays for others as the main source of value input, while under the advertising model, it is the ultimate buyer of goods who pays for everyone else.

This also explains why it is difficult for social networks to have a hybrid model of subscriptions and advertising. In the subscription model, the subscription behavior directly inputs value to the system. However, users who are willing to subscribe are often high-value people who can be converted into commodity buyers through advertisements, that is, these two value input methods are mutually exclusive. Once these people evade advertising by subscribing, the advertising business model will lose a large number of commodity buyers, thereby losing value input channels, making the advertising model unsustainable. This also gives us a way to judge the pros and cons of different business models. If we want to subvert the current social network, we must reduce the total social cost by optimizing the value stream, rather than simply switching from an advertising model to a subscription model.

Step 3: Target Segmentation

The platform is subdivided according to its development stage, and we found that different development stages of the platform have different goals.

The primary goal of social networks in the early days was to form scale effects, because scale effects themselves can lead to user growth. In other words, “Users use the social platform because other people use the platform”. In other words, the use of the platform by early users is helping the platform to form a scale effect, which is helping the platform to attract new users and convert users, and indirectly create value for the platform. This value is paid by the users who enter later. . From this we can do a progressive analysis based on stages and behaviors:

  1. Content consumption behavior has always consumed value, but also created value in the early stage
  2. Content creation always consumes value, but it also creates value in the early stage, and good content in the later stage can also create value
  3. Commodity purchase behavior , creating value

Step 4: Token Design

Many social to earn projects are essentially tokenizing the behavior and value we mentioned above, so as to achieve the goal of platform growth and profitability. This kind of token with social attributes is called social token. The value of social token is multi-faceted:

  1. Increase the transparency of value flows . A good token system should focus on displaying the value flow of the system, thereby improving the efficiency of value circulation.
  2. Increase the flexibility of system adjustment . We can adjust the parameters of the system to balance our goals. In the early stage, we can increase incentives to increase user growth. In the later stage, we must pay more attention to balance. The system parameters cannot be static.

Based on the behavior and goal analysis in the previous section, one of the most straightforward token design options is:

  1. Behaviors related to commodity purchases , reward users with tokens
  2. Content consumption behavior , free in the early stage or rewarding users with tokens, and tokens in the later stage
  3. The content creation behavior is free in the early stage and requires tokens in the later stage, but according to the popularity of the content, the system will reward the content creator with a certain amount of tokens

But in real life, users generally become content consumers first and then commodity buyers. Content creators face the same dilemma. Generally speaking, the previous works of a new content creator generally have very few views. Asking users to pay in advance will greatly discourage users and affect user growth. Existing systems use later revenue to cover usage costs, so a more reasonable approach is:

  1. Behaviors related to commodity purchases , reward users with tokens
  2. Content consumption behavior , early free, late fee or free
  3. Content creation behavior , on the basis of deducting costs, reward content creators with an appropriate amount of tokens according to the popularity of the content


in principle

  1. Understand the source and flow of value streams to ensure that value flows are sustainable and self-consistent
  2. Figure out whether specific user behavior is consuming or creating value
  3. Take time into account and adjust your model according to different goals in different periods
  4. This model is preferably adjustable, and some key parameters can be handed over to community governance in an appropriate way. Once we understand the value flow, we can judge whether an X to earn model is reliable. Social to earn is not necessarily infeasible, but we need to ensure that we only reward those behaviors that create value, rather than mindlessly throwing money on all behaviors of all users.


  1. Only three simple user actions are discussed. The behaviors of social platforms are diverse, and we should examine their value streams for different behaviors in order to obtain a comprehensive analysis. We can even incorporate non-user behaviors, such as investor investment, programmer development, and offline community operations.
  2. Just a qualitative analysis. The specific token design should be quantitatively analyzed based on specific costs and expected benefits.
  3. How to tell if a piece of content is good? How to judge how much value a piece of content brings? This requires the community to come up with a more innovative approach, but it can be vague and iteratively adjusted in the early stages.

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/explain-in-detail-the-value-source-and-design-method-of-functional-tokens/
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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